Bank of Uganda (BoU) has attributed the appreciation of the Shilling against the dollars to a combination of factors, which included depreciation of the dollar, increase in oil prices, increased private remittances and a rise in dollar inflows due to increased offshore investors in government securities.

The Shilling appreciated by 6.3 per cent in May, the highest in years.

And according to Dr Adam Mugume, the Bank of Uganda executive director for research, the shilling’s appreciation trend since January has been due to strong forex inflows, especially portfolio inflows, attracted by yields on government securities.

Dr Mugume said at the end of May, offshore holding of government securities was about $700m up from about $280m a year ago while remittances from workers in the diaspora have also been strong, totaling to about $840m between July 2020 and April 2021.

However, he said whether the appreciation of the shilling, which is actually undesirable since it hurts exports, will persist, will be a question since the dollar and other international currencies, except the Japanese Yen, will trend in coming months since their inflation rates are above target.

“If advanced economies reverse their monetary policy easing stance, this could cause taper tantrum resulting in offshore investors in the domestic market to free back into currencies regarded as safe haven,” he said.